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Question 1;According to Blinder the Fed was skeptical of Lehmans solvency at the end of May, 2008.;True or False?;Question 2;There was a bubble in MBS values as well as home values that grew between 2004 and 2008.;True or False?;Question 3;According to the 10-Q filed by WMI Holdings Corp on 8/11/2008 the access the bank had to some;sources of liquidity were dependent on third party credit ratings of the companys debt obligations.;True or False?;Question 4;Securitization transforms illiquid financial instruments into liquid securities.;True or False?;Question 5;The securitization of financial assets including sub-prime mortgages shifted risk from the banks that;originated the loans to the borrowers.;True or False?;Question 6;According to the Financial Accounts of the United States U.S.-chartered depository institutions, vault cash;and reserves at the Federal Reserve increased from $5.107 billion in 2007 to $1.2 trillion in 2008.;True or False?;Question 7;Alan Blinder places part of the blame for the financial crisis on Moodys but praises Standard and Poors.;He argues that Standard and Poors never gave AAA ratings to CDOs that were backed by subprime;MBS. Blinder puts the blame on the incompetence of Moodys analysts.;True or False?;Question 8;According to the 10-Q filed by Citigroup Inc. 10/31/2008 Citigroup missed interest payments on its;unsecured debt.;True or False?;Question 9;The recent bubble in real estate could not have occurred if both lenders and borrowers had not agreed;that real estate prices.;a.Would remain static.;b.Would soon decline.;c.Would become quite volatile in the short run.;d.Would continue to increase.;Question 10;In March of 2008 the spread between the Fed Funds rate and the one month Treasury bill was;a.186 basis points.;b.111 basis points;c.121 basis points;d.-343 basis points;Question 11;The Federal Reserve refused to act as lender of last resort during the last crisis because Bernanke;believed that bank executives had ripped off society. In addtion Bernanke feared the long term affects of;moral hazard.;True or False?;Question 12;According to Alan Blinder the compensation schemes at investment banks linked the wealth of bankers to;the risks of the assets the bank securitized. This is why the crisis of 2007-2009 never reached the same;proportions as the crisis of the 1930s. In addition the partnership structure of investment banks during the;1920s increased the principle agent problem.;True or False?;Question 13;The reason the financial crisis of 2007 was so much worse than the crisis of 1907 was that depositors;withdrew money in the fall of 2007 when the market for asset-backed securities collapsed.;True or False?;Question 14;Sub-prime mortgage originators such as New Century were net lenders in the Repo market. When the;Repo market collapsed this hurt an important source of revenue for New Century.;True or False?;Question 15;During periods of financial distress investors tend to sell risky assets and buy safe assets. This flow of;funds from risky assets to safer assets;a.Reduces the cost of borrowing for businesses and for the Federal Government.;b.Increases the cost of borrowing for businesses and for Federal Government.;c.Reduces the cost of borrowing for the Federal Government and increases the cost of borrowing for the;private sector.;d.Increases the cost of borrowing for the Federal Government.;Question 16;Repo lenders require collateral as security. Often this security was MBS. When the MBS began to lose;value in 2008 as ratings were lowered, lenders required borrowers to post additional collateral. As lenders;sold assets to raise cash collateral values fell further requiring additional sales. This downward spiral in;debt prices is indicative of a worsening financial crisis.;True or False?;Question 17;The spread between yields on Aaa rated corporate debt and Baa corporate debt were at their peak in;a.1942;b.1932;c.1929;d.2008;Question 18;A credit default swap seller (short) makes a commitment to pay the buyer (long) if a credit event occurs.;The buyer pays a periodic premium to the seller.;True or False?;Question 19;A financial institution is insolvent when the market value of its assets is less than the market value of its;liabilities.;True or False?;Question 20;The decline in home values since 2007 led to serious financial distress in the household sector and the;banking sector because;a.The decline led to a decrease in the debt/equity ratio of both households and banks.;b.The decline led to an increase in the debt/equity ratio of both households and banks.;c.The decline lowered the demand for housing.;d. The decline increased the value of mortgage-backed securities and corporate bonds.;Question 21;A financial institution is insolvent when the book value of its assets is less than the book value of its;liabilities.;True or False?;Question 22;This statement from the 10-K filed by Bear Stearns for the Fiscal year 2007 indicates that management;was aware that the firm;was exposed to a run by other banks. An inability to raise money in the long-term or short-term debt;markets;or to engage in repurchase agreements or securities lending, could have a substantial negative effect on;our liquidity.;True or False?;Question 23;According to the Financial Accounts of the United States the financial assets of security broker-dealers fell;by over $1 trillion in the fourth quarter of 2008.;True or False?;Question 24;Securitization eliminates credit and interest rate from the financial system. This is one of the great;benefits of securitization.;True or False?;Question 25;Repo lending is a source of short term capital for financial institutions. When this capital dried up Lehman;and Bear switched to equity finance and this caused the stock market to collapse in the spring of 2009.;True or False?;Question 26;The spread between 3 month treasury securities and 3 month financial commercial paper increased from;10 basis points in June of 2003 to 400 basis points in October of 2008.;True or False?;Question 27;Between June of 2008 and December of 2008 financial commercial paper outstanding (Financial;commercial paper outstanding (CP/OUTST/DTBSPCKF_N.M) declined from approximately $849 billion to;approximately $700 billion.;True or False?;Question 28;Originators of subprime mortgages relied on the repo market to warehouse loans prior to their sale or;securtization of the originated assets.;True or False?;Question 29;Commercial bank lending rose by $50 million in the second quarter of 2009.;True or False?;Question 30;Investors extrapolated the favorable default experience of MBS over the years from 2004-2006 into the;indefinite future. This caused investors to overpay for MBS. This contributed to the bond bubble that burst;in 2008.;True or False?;Question 31;Repurchase agreements are used by investment banks as source of liquidity. A bank that wants to borrow;funds sells assets to a lender promising to buy the assts back. The sale price is always higher than the;repurchase price;True or False?;Question 32;Financial institutions that rely on REPOs are forced to go back to the market regularly to roll over;maturing paper. This is a risk to the firm since fear of lenders can create a severe liquidity crisis for the;borrowing firm.;True or False?;Question 33;Once Bear Stearns collapsed the spread between the yield on 1 month commercial paper and one;treasury bills continued to steadily widen until May of 2009 when it stabilized.;True or False?;Question 34;According to the Financial Accounts of the United States the treasury securities held by security brokerdealers increased by over $500 billion in the fourth quarter of 2008.;True or False?;Question 35;According to the Financial Accounts of the United States, open market paper owned by money market;mutual funds declined by $594,156,800,000 in the third quarter of 2008.;True or False?;Question 36;The largest quarterly drop in real GDP since 1979 was in the first quarter of 2009 at -6.4%.;True or False?

Paper#26893 | Written in 18-Jul-2015

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